2/20/2012

Brussels poised to vet nations’ budgets

European Union finance ministers are expected to approve new rules on Tuesday that would force eurozone members to submit their annual tax and spending plans to Brussels for review before they are approved by national parliaments.

According to a draft of the regulations obtained by the Financial Times, the European Commission, the EU’s executive branch, would also be given the power to deploy unilaterally surveillance teams to eurozone countries undergoing bail-outs and even install technical experts in national ministries. The rules would enable the Commission to adopt in Ireland and Portugal the same sort of tough oversight that is expected to be foisted on Greece this week.

The two new pieces of legislation expand on fresh powers given to the Commission earlier this year allowing it to dictate changes in spending and taxation in eurozone countries that have breached EU debt and deficit limits. At present, 14 of the 17 members of the single currency are in such an “excessive deficit procedure”. Only Luxembourg, Finland and Estonia are not.

Earlier changes were aimed at beefing up the disciplinary tools applied to countries with excessive deficits. The new legislation is intended to ensure countries do not break the rules in the first place.

European officials see the new legislation as a further step towards creating a “fiscal union” to accompany the currency zone’s monetary union.

Much attention has been recently paid to a new German-inspired intergovernmental treaty to enshrine fiscal discipline. But parallel legislative moves in Brussels giving EU authorities greater say in national budget decision-making have already eroded national sovereignty without much public debate.

Diplomats cautioned that changes in the legislation could still be made when finance ministers debated the measures in Brussels on Tuesday, and the European Parliament must also weigh in on the rules.

The draft of the new rules requires eurozone governments to “consult” the Commission and other eurozone countries before adopting any “major fiscal policy reform plans” that could affect the currency bloc. Eurozone countries would also be required to submit all plans for sovereign bond auctions.

The Commission would have the authority to publish any changes it recommended, greatly increasing the pressure it could apply on eurozone capitals. The Commission could even recommend a government rewrite a budget entirely.

“In case of particularly serious non-compliance with budgetary obligation ... the Commission in its opinion on the draft budgetary plans will request a revised draft budgetary plan,” the legislation reads.

The draft excises a proposal made by the Commission last year which would have given Brussels the right to force a eurozone country into a bail-out. But the draft would allow the Commission unilaterally to decide when a eurozone country should be put under “enhanced surveillance”

Although such monitoring would be mandatory for bail-out countries, other countries deemed to be “experiencing severe difficulties” could be subject to on-the-ground monitoring teams as well.

“The intensity of the economic and fiscal surveillance should be commensurate to the severity of the financial difficulties encountered and should take due account of the nature of the financial assistance received,” the draft states.